UK banks rally on hopes of tax reprieve in upcoming budget

Shares in leading UK banks rose sharply amid growing confidence that the sector will escape new tax increases in Rachel Reeves’s forthcoming budget. On Tuesday, Lloyds shares climbed by 3.8 percent, NatWest advanced 3.7 percent, and Barclays gained 2.3 percent, reflecting investor optimism fuelled by reports that banks have been asked by the Treasury to prepare positive statements ahead of the announcement.

This request is widely viewed as an indication that additional levies, which have been the subject of intense industry lobbying, are unlikely to be imposed. The banks argued that total tax rates for UK lenders, including employment taxes and VAT, stand at 45.8 percent, well above comparable figures in Frankfurt and New York. Executives warned that further increases could restrict lending and offset recent regulatory reforms designed to promote growth across the financial sector.

Speculation over a bank tax hike was rekindled in August when the IPPR thinktank urged the government to introduce a new charge on lenders, aiming to recover profits linked to quantitative easing measures introduced after the 2008 financial crisis. The prospect of a sector-specific tax resurfaced after the Treasury dropped plans to raise income tax rates, creating uncertainty among banking boardrooms until recent reports restored confidence of a reprieve.

While the Treasury’s approach has reassured investors, campaigners and Labour MPs continue to press for higher taxation of bank profits. Positive Money, an advocacy group, has presented a petition with nearly 69000 signatures supporting a windfall tax for banks. The group argues that a 38 percent tax rate—matching the current windfall charge on energy companies—could generate over £14 billion for public services.

Labour MP Simon Opher emphasised the necessity of securing funding for health, education, and communities, suggesting that utilising bank profits is a fair strategy to strengthen the economy and support essential public services. The outcome of Wednesday’s budget remains highly anticipated, with the sector awaiting final confirmation of the government’s fiscal approach.